Ta Ann’s 1QFY22 core earnings surged 133% YoY to RM73.3m, bolstered by stronger earnings contributions from both plantation and timber segments as well as higher contribution from its associate companies. Despite the strong set of results, it made up only 19% of our full-year forecast but in line with consensus at 25%. Nevertheless, we make no changes to our numbers as we expect to see a strong catch-up in the subsequent quarters on the back of strong contribution from both plantation and timber segments. A first interim DPS of 10sen was declared for FY22. Maintain Neutral call with an unchanged SOP-based TP of RM5.16.

• Driven by higher plantation and timber sales (QoQ: -20.2%, YoY: +43.2%). The stronger group sales of RM488m were mainly led by an increase in both timber (YoY: +42%) and plantation (YoY: +44%) sales. Plantation sales jumped from RM271m to RM389m on the back of stronger CPO prices despite a decline in FFB production. 1QFY22 average CPO selling price advanced from RM3,749/mt to RM5,550/mt while 1QFY22 FFB production was marginally lower at 131,736mt. Meanwhile, timber sales surged from RM69m to RM98m as plywood sales tripled to RM71m despite log sales tumbled 47% YoY. 1QFY22 average log export price rose 13% YoY to USD261/cu m and plywood price soared 40% YoY to USD571/cu m. Log export sales volume fell 14% YoY to cu m while plywood exports sales volume dropped by 2% YoY to 86,527 cu m.

• Core earnings doubled to RM73m. The stronger earnings were mainly led by a stronger earnings contribution from both timber and plantation segments. Plantation pre-tax earnings jumped from RM43m to RM92m, led by stronger profit margin. 1QFY22 CPO production cost averaged at RM2,455/mt (including PK credit). Timber earnings surged 5-fold to RM22.3m, as log earnings jumped 73% YoY to RM9m while plywood returned to the black with a strong pre-tax profit of RM12.9m. Meanwhile, earnings contributions from its 29.4%-owned Sarawak Plantation and joint venture owned refinery company doubled to RM17.3m.

• Outlook. Management has lowered its FFB production target from 765k mt to 730k mt due to the weaker-than-expected production level in 1QFY22. Log production is expected to hit 72% YoY to 432k cum (natural log: 280k cu m, plantation log: 151k cu m), led by more machineries installed. Meanwhile, it expects CPO production cost to go up to RM1,800/mt- 2,000/mt, lifted by a surge in fertilizer cost and higher windfall tax. Fertiliser application in 1Q2022 reached only 20% and it tends to focus on young and high production areas. Management also shared that it is currently experiencing worker shortage of 20%-30% (500 workers) of its requirement. They are currently in the midst of sorting out the hiring process and expect the foreign workers to come in by 3Q 2022. Lastly, no forward sales were locked in this year.

Source: PublicInvest Research - 24 May 2022